-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FP5QHenH2PwTeIymPkV2F9vnNN0Lm/6RG4BuGbgZeJN++/go8ZfCaE8Sv/GuGq8z 8s4YnKTO79jELaGYtFCR8w== 0000950144-98-011574.txt : 19981020 0000950144-98-011574.hdr.sgml : 19981020 ACCESSION NUMBER: 0000950144-98-011574 CONFORMED SUBMISSION TYPE: 11-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19981019 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COVENTRY HEALTH CARE INC CENTRAL INDEX KEY: 0001054833 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 522073000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 11-K SEC ACT: SEC FILE NUMBER: 000-29676 FILM NUMBER: 98727608 BUSINESS ADDRESS: STREET 1: 6705 ROCKLEDGE DR STE 100 CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3015810600 MAIL ADDRESS: STREET 1: 6705 ROCKLEDGE DR SUITE 100 STREET 2: STE 250 CITY: BETHESDA STATE: MD ZIP: 20817 11-K 1 COVENTRY HEALTH CARE INCORPORATED 1 FORM 11-K ANNUAL REPORT ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission File No.: 000-19147 COVENTRY CORPORATION RETIREMENT SAVINGS PLAN (Full title of plan) COVENTRY HEALTH CARE, INC. 6705 Rockledge Drive Suite 100 Bethesda, Maryland 20817 (Name of issuer of securities held pursuant to the plan and address of principal executive office) 2 Pursuant to the requirements of the Securities Exchange Act of 1934, the committee to administer the Coventry Corporation Retirement Savings Plan has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. COVENTRY CORPORATION RETIREMENT SAVINGS PLAN Date: October 19, 1998 By: /s/ Shirley R. Smith ------------------------- ----------------------------------- Name: Shirley R. Smith ----------------------------------- Title: Plan Administrative Committee ----------------------------------- Date: October 19, 1998 By: /s/ Dale B. Wolf ------------------------- ----------------------------------- Name: Dale B. Wolf ----------------------------------- Title: Plan Administrative Committee ----------------------------------- 3 TABLE OF CONTENTS Report of Independent Public Accountants................................................ 1 Financial Statements Statements of Net Assets Available for Benefits as of December 31, 1997 and 1996.................................................................. 2 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1997................................................... 3 Notes to Financial Statements and Schedules as of December 31, 1997 and 1996............ 5 Schedules Supporting Financial Statements Schedule I: Item 27a - Schedule of Assets Held for Investment Purposes as of December 31, 1997.................... 12 Schedule II: Item 27d - Schedule of Reportable Transactions for the Year Ended December 31, 1997.................... 13 The following is a complete list of Exhibits filed or incorporated by reference as part of this annual report: EXHIBITS 1. Consent of Independent Auditors.................................................. E-1
4 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Administrative Committee of the Coventry Corporation Retirement Savings Plan: We have audited the accompanying statements of net assets available for benefits of Coventry Corporation Retirement Savings Plan (the "Plan") as of December 31, 1997 and 1996, and the related statement of changes in net assets available for benefits for the year ended December 31, 1997. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1997 and 1996, and the changes in its net assets available for benefits for the year ended December 31, 1997, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Washington, D.C. October 14, 1998 1 5 COVENTRY CORPORATION RETIREMENT SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ASSETS: Cash $ 127,331 $ 67,000 Investments, at fair value- Schwab U.S Treasury Money Fund 3,154 63,009 Coventry Corporation Common Stock 2,752,025 1,982,178 Berger One Hundred Fund 7,084,603 8,391,961 Fidelity Balanced Fund -- 6,030,308 Fidelity Magellan Fund 13,573,356 13,542,507 INVESCO Stable Value Fund 4,667,358 4,429,729 PIMCO Total Return Fund 3,833,215 3,639,773 Brandywine Fund 1,426,543 568,118 Founders Balanced Fund 714,773 233,645 Harbor Capital Appreciation Fund 1,093,314 383,858 Janus Worldwide Fund 2,205,999 737,349 Mutual Series Beacon Fund 2,110,302 665,586 PBHG Growth Fund 2,083,797 1,051,997 Strong Government Securities Fund 433,964 287,803 Vanguard Asset Allocation Fund 7,174,083 376,698 Participant Loans 1,088,159 1,215,918 ----------- ----------- Total cash and investments 50,371,976 43,667,437 ----------- ----------- Receivables: Participant contributions 31,585 78,118 Employer contributions 58,362 41,175 Interest and dividends receivable 48,117 -- ----------- ----------- Total receivables 138,064 119,293 ----------- ----------- Total assets available for benefits 50,510,040 43,786,730 ----------- ----------- LIABILITIES: Excess contributions payable 154,993 80,600 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $50,355,047 $43,706,130 =========== ===========
The accompanying notes are an integral part of these statements. 2 6 COVENTRY CORPORATION RETIREMENT SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1997
NON-PARTICIPANT DIRECTED PARTICIPANT DIRECTED ------------------------ ------------------------------------------------------ SCHWAB COVENTRY EXCESS U.S. CORP. BERGER ONE FIDELITY CONTRIBUTIONS TREASURY COMMON HUNDRED BALANCED CASH PAYABLE MONEY FUND STOCK FUND FUND --------- --------- --------- ----------- ----------- ----------- ADDITIONS: Contributions- Employee $ 65,355 $(134,729) $ 172,656 $ -- $ 275,003 $ -- Employer, net of forfeitures (5,019) (20,264) 25,105 -- (74,107) -- --------- --------- --------- ----------- ----------- ----------- Total contributions 60,336 (154,993) 197,761 -- 200,896 -- --------- --------- --------- ----------- ----------- ----------- Investment income- Interest and dividends 83 -- 9,759 -- 2,446,981 -- Net increase (decrease) in fair market value of investments -- -- -- 1,178,991 (1,463,139) (38,496) --------- --------- --------- ----------- ----------- ----------- Total investment income 83 -- 9,759 1,178,991 983,842 (38,496) --------- --------- --------- ----------- ----------- ----------- Total additions 60,419 (154,993) 207,520 1,178,991 1,184,738 (38,496) --------- --------- --------- ----------- ----------- ----------- DEDUCTIONS: Benefit distributions -- 80,600 -- (377,988) (1,562,346) (7,174) Administrative expenses -- -- -- -- (75) -- --------- --------- --------- ----------- ----------- ----------- Total deductions -- 80,600 -- (377,988) (1,562,421) (7,174) --------- --------- --------- ----------- ----------- ----------- INTERFUND TRANSFERS (88) -- (267,375) (31,156) (929,675) (5,984,638) --------- --------- --------- ----------- ----------- ----------- NET INCREASE (DECREASE) 60,331 (74,393) (59,855) 769,847 (1,307,358) (6,030,308) NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 67,000 (80,600) 63,009 1,982,178 8,391,961 6,030,308 --------- --------- --------- ----------- ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 127,331 $(154,993) $ 3,154 $ 2,752,025 $ 7,084,603 $ -- ========= ========= ========= =========== =========== ===========
PARTICIPANT DIRECTED ---------------------------------------------------------- FIDELITY INVESCO MAGELLAN STABLE PIMCO TOTAL BRANDYWINE FUND VALUE FUND RETURN FUND FUND SUBTOTAL ------------ ----------- ----------- ----------- ------------ ADDITIONS: Contributions- Employee $ 415,873 $ 156,282 $ 280,061 $ 427,887 $ 1,658,388 Employer, net of forfeitures (112,436) 219,250 68,506 214,654 315,689 ------------ ----------- ----------- ----------- ------------ Total contributions 303,437 375,532 348,567 642,541 1,974,077 ------------ ----------- ----------- ----------- ------------ Investment income- Interest and dividends 929,129 282,063 312,741 257,839 4,238,595 Net increase (decrease) in fair market value of investments 2,319,155 -- 36,583 (162,531) 1,870,563 ------------ ----------- ----------- ----------- ------------ Total investment income 3,248,284 282,063 349,324 95,308 6,109,158 ------------ ----------- ----------- ----------- ------------ Total additions 3,551,721 657,595 697,891 737,849 8,083,235 ------------ ----------- ----------- ----------- ------------ DEDUCTIONS: Benefit distributions (2,390,467) (833,894) (577,348) (237,114) (5,905,731) Administrative expenses (75) -- (75) (150) (375) ------------ ----------- ----------- ----------- ------------ Total deductions (2,390,542) (833,894) (577,423) (237,264) (5,906,106) ------------ ----------- ----------- ----------- ------------ INTERFUND TRANSFERS (1,130,330) 413,928 72,974 357,840 (7,498,520) ------------ ----------- ----------- ----------- ------------ NET INCREASE (DECREASE) 30,849 237,629 193,442 858,425 (5,321,391) NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 13,542,507 4,429,729 3,639,773 568,118 38,633,983 ------------ ----------- ----------- ----------- ------------ NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 13,573,356 $ 4,667,358 $ 3,833,215 $ 1,426,543 $ 33,312,592 ============ =========== =========== =========== ============
The accompanying notes are an integral part of this statement. 3 7 COVENTRY CORPORATION RETIREMENT SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
PARTICIPANT DIRECTED ----------------------------------------------------------------------------- HARBOR MUTUAL FOUNDERS CAPITAL JANUS SERIES BALANCED APPRECIATION WORLDWIDE BEACON PBHG GROWTH FUND FUND FUND FUND FUND --------- ----------- ----------- ----------- ----------- ADDITIONS: Contributions- Employee $ 223,810 $ 259,008 $ 552,987 $ 604,588 $ 840,982 Employer, net of forfeitures 115,010 110,311 253,133 301,665 406,392 --------- ----------- ----------- ----------- ----------- Total contributions 338,820 369,319 806,120 906,253 1,247,374 --------- ----------- ----------- ----------- ----------- Investment income- Interest and dividends 65,959 158,396 156,565 250,729 13,652 Net increase (decrease) in fair market value of investments 17,282 17,288 134,516 81,100 14,779 --------- ----------- ----------- ----------- ----------- Total investment income 83,241 175,684 291,081 331,829 28,431 --------- ----------- ----------- ----------- ----------- Total additions 422,061 545,003 1,097,201 1,238,082 1,275,805 --------- ----------- ----------- ----------- ----------- DEDUCTIONS: Benefit distributions (141,290) (159,027) (217,927) (238,337) (200,833) Administrative expenses (75) (75) (186) (150) (75) --------- ----------- ----------- ----------- ----------- Total deductions (141,365) (159,102) (218,113) (238,487) (200,908) --------- ----------- ----------- ----------- ----------- INTERFUND TRANSFERS 200,432 323,555 589,562 445,121 (43,097) --------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) 481,128 709,456 1,468,650 1,444,716 1,031,800 NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 233,645 383,858 737,349 665,586 1,051,997 --------- ----------- ----------- ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 714,773 $ 1,093,314 $ 2,205,999 $ 2,110,302 $ 2,083,797 ========= =========== =========== =========== ===========
PARTICIPANT DIRECTED ---------------------------------------------------------- STRONG GOV. VANGUARD ASSET SECURITIES ALLOCATION PARTICIPANT FUND FUND RECEIVABLES LOANS TOTAL --------- ----------- ----------- ----------- ------------ ADDITIONS: Contributions- Employee $ 104,945 $ 407,402 $ (46,533) $ -- $ 4,605,577 Employer, net of forfeitures 55,311 73,712 17,187 -- 1,648,410 --------- ----------- --------- ----------- ------------ Total contributions 160,256 481,114 (29,346) -- 6,253,987 --------- ----------- --------- ----------- ------------ Investment income- Interest and dividends 19,318 569,342 48,117 -- 5,520,673 Net increase (decrease) in fair market value of investments 11,649 1,048,944 -- -- 3,196,121 --------- ----------- --------- ----------- ------------ Total investment income 30,967 1,618,286 48,117 -- 8,716,794 --------- ----------- --------- ----------- ------------ Total additions 191,223 2,099,400 18,771 -- 14,970,781 --------- ----------- --------- ----------- ------------ DEDUCTIONS: Benefit distributions (130,650) (1,171,732) -- (155,176) (8,320,703) Administrative expenses (75) (150) -- -- (1,161) --------- ----------- --------- ----------- ------------ Total deductions (130,725) (1,171,882) -- (155,176) (8,321,864) --------- ----------- --------- ----------- ------------ INTERFUND TRANSFERS 85,663 5,869,867 -- 27,417 -- --------- ----------- --------- ----------- ------------ NET INCREASE (DECREASE) 146,161 6,797,385 18,771 (127,759) 6,648,917 NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 287,803 376,698 119,293 1,215,918 43,706,130 --------- ----------- --------- ----------- ------------ NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 433,964 $ 7,174,083 $ 138,064 $ 1,088,159 $ 50,355,047 ========= =========== ========= =========== ============
The accompanying notes are an integral part of this statement. 4 8 COVENTRY CORPORATION RETIREMENT SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS AND SCHEDULES AS OF DECEMBER 31, 1997 AND 1996 1. PLAN DESCRIPTION: The following description of the Coventry Corporation Retirement Savings Plan (the "Plan") is provided for general information purposes only. More complete information regarding the Plan's provisions may be found in the Plan document. GENERAL Coventry Corporation (the "Company") adopted a savings plan and trust effective July 1, 1994. As of the adoption date, Group Health Plan, Inc. and Health America Pennsylvania, Inc., subsidiaries of Coventry Corporation, merged their plans with the Coventry Corporation Retirement Savings Plan. Two additional subsidiaries' plans, Southern Health and Healthcare USA, were merged into the Plan during 1996. The Plan is a defined contribution plan established by Coventry Corporation under the provisions of Section 401(a) of the Internal Revenue Code ("IRC"), which includes a qualified cash or deferred arrangement as described in Section 401(k) of the IRC, for the benefit of eligible employees of the Company. All employees of the Company who have completed one year of service, as defined, are eligible to participate. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. PLAN ADMINISTRATION Under a trust agreement dated July 1, 1994, Charles Schwab Trust Company was appointed trustee for the Plan. The Plan is administered by an employee benefits committee, which is appointed by the Board of Directors of the Company. CONTRIBUTIONS Eligible employees can contribute an amount up to 15 percent of compensation, as defined by the Plan, subject to certain limitations under the IRC. In 1997 and 1996, the Company provided a matching contribution equal to 100 percent of each participant's contribution up to a maximum of 3 percent, and 50 percent of each participant's contribution in excess of 3 percent up to a maximum of 6 percent of compensation. EXCESS CONTRIBUTIONS PAYABLE During 1997 and 1996, the Company determined an excess matching contribution equal to approximately $20,264 and $80,600 respectively, was made in error to employees. These amounts will be used to reduce future employer contributions. In addition, during 1997 employee contributions include $134,729 in excess contributions which were refunded to 5 9 participants subsequent to year-end as the contributions were determined to be in excess of maximum contribution levels for certain participants. A liability for excess contributions payable in the amount of $154,993 and $80,600 has been reflected in the statements of net assets available for benefits as of December 31, 1997 and 1996, respectively. VESTING Participants are fully vested in their contributions and the earnings thereon. Vesting in employer matching contributions is based on years of continuous service. A participant vests according to the following schedule:
Less than one year 0% One year 20% Two years 40% Three years 60% Four years 80% Five years 100%
FORFEITED ACCOUNTS At December 31, 1997 and 1996, forfeited nonvested accounts totaled $275,173 and $680,353, respectively. These accounts will be used to reduce future employer contributions. During 1997, $800,747 in forfeited nonvested accounts were used to reduce employer contributions. BENEFITS Upon termination of service due to death, disability, or retirement, a participant may elect to receive an amount equal to the value of the participant's vested interest in his or her account. The form of payment is a lump-sum distribution. PARTICIPANT ACCOUNTS Individual accounts are maintained for each of the Plan's participants to reflect the participant's contributions and related employer matching contributions, as well as the participant's share of the Plan's income and any related administrative expenses. Allocations are based on the proportion that each participant's account balance has to the total of all participants' account balances. INVESTMENT OPTIONS Participants may direct employee and employer contributions and any related earnings into fourteen investment options in 10 percent increments. Participants may change their investment elections monthly. A description of each investment option is provided below: COVENTRY CORPORATION COMMON STOCK - This fund invests exclusively in common stock of the Company, which is traded "over-the-counter" and listed on the NASDAQ/National Market System. Pending trades are temporarily held in the Schwab U.S. Treasury Money Fund. 6 10 BERGER ONE HUNDRED FUND - This fund seeks long-term capital appreciation by investing primarily in common stocks of established companies. FIDELITY BALANCED FUND - This fund seeks to maximize income while preserving capital through investments in a mix of equity and fixed-income securities. The Fund also aims for some capital growth. FIDELITY MAGELLAN FUND - This fund seeks growth of capital through investments in common stocks or securities convertible into common stock. INVESCO STABLE VALUE FUND - This fund seeks to offer income levels comparable to those generated by intermediate-term, high-quality debt obligations, while guaranteeing principal. The fund is a conservatively managed, broadly diversified pool of investment contracts guaranteed by insurance companies. PIMCO TOTAL RETURN FUND - This fund seeks to earn total return consistent with conservative investment management. The fund invests in fixed-income securities, including corporate bonds, U.S. government securities, mortgage-related securities, and money market instruments. BRANDYWINE FUND - This fund seeks long-term capital appreciation by investing in profitable companies with strong earnings momentum. The fund invests primarily in corporate stock. FOUNDERS BALANCED FUND - This fund seeks to earn current income and capital appreciation by investing in dividend-paying stocks of established companies, government and corporate bonds. HARBOR CAPITAL APPRECIATION FUND - This fund seeks long-term growth of capital by investing primarily in a portfolio of equity securities of established companies with above average prospects for growth. JANUS WORLDWIDE FUND - This fund invests primarily in stocks of foreign and domestic issuers. MUTUAL SERIES BEACON FUND - This fund invests primarily in common stock, preferred stock and debt securities. The principal objective of the fund is capital appreciation. Its secondary objective is income. PBHG GROWTH FUND - This fund invests in companies believed by its investment advisor to have an outlook for strong growth in earnings and the potential for significant capital appreciation. STRONG GOVERNMENT SECURITIES FUND - This fund seeks a high level of current income by investing in U.S. government securities. VANGUARD ASSET ALLOCATION FUND - This fund seeks to maximize total return while exhibiting less risk than a portfolio consisting entirely of equities. The fund allocates assets among a common stock portfolio, a bond portfolio and money market instruments. 7 11 PARTICIPANT LOANS A participant may borrow a maximum of the lesser of $50,000 or 50 percent of his or her vested account balance with a minimum loan amount of $500. Loans are repayable through payroll deductions over periods ranging up to five years. The interest rate is determined by the plan administrator based on prevailing market rates available for similar loans from commercial lending institutions and is fixed over the life of the note. The interest rates at December 31, 1997, ranged from 7.00 percent to 10.00 percent. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF ACCOUNTING The accompanying financial statements are prepared on the accrual basis of accounting. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires the Plan's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. INCOME RECOGNITION Interest income is recorded as earned on the accrual basis. Dividend income is recorded on the ex-dividend date. INVESTMENT VALUATION Investments of the Plan are stated at fair market value based on quoted net asset values on the last business day of the Plan year. Participant loans are valued at cost which approximates fair value. ADMINISTRATIVE EXPENSES The Company pays all administrative expenses of the Plan, except for the administrative costs of mutual funds and loan processing fees. Administrative expenses paid by the Company were $186,749 and $271,211 in 1997 and 1996, respectively. PAYMENT OF BENEFITS Benefits are recorded when paid out of the Plan. 8 12 3. INVESTMENTS: The values of individual assets that represent 5 percent or more of the Plan's net assets as of December 31, 1997 and 1996, are as follows: 1997: Coventry Corporation Common Stock $ 2,752,025 Berger One Hundred Fund 7,084,603 Fidelity Magellan Fund 13,573,356 INVESCO Stable Value Fund 4,667,358 PIMCO Total Return Fund 3,833,215 Vanguard Asset Allocation Fund 7,174,083 1996: Berger One Hundred Fund $ 8,391,961 Fidelity Balanced Fund 6,030,308 Fidelity Magellan Fund 13,542,507 INVESCO Stable Value Fund 4,429,729 PIMCO Total Return Fund 3,639,773
4. TAX STATUS: The Plan obtained it's latest determination letter on November 17, 1997, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the IRC. The Plan has been amended since receiving the determination letter. However, the Plan Administrator believes that the Plan is currently designed and is being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan's financial statements. 5. PLAN TERMINATION: Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants will become 100 percent vested in their account balances. 6. DEPARTMENT OF LABOR REVIEW: The Department of Labor (DOL) is conducting a review of the Plan to determine if the Plan has been operated in accordance with the DOL's rules and regulations. In the opinion of the Plan's Administrator, the review will not result in any findings that could have a material adverse effect on the Plan. 9 13 7. SUBSEQUENT EVENTS: Effective April 1, 1998, Coventry Corporation (which changed its name to "Coventry Health Care, Inc.") completed its acquisition of certain assets of Principal Health Care, Inc. ("PHC") from Principal Mutual Life Insurance Company. On April 1, 1998, the Coventry Health Care, Inc. Retirement Savings Plan (the "New Plan") was established and any prior PHC participant account balances included in the assets of another qualified retirement plan were rolled over into the New Plan at the election of the former PHC employees. Effective October 1, 1998, the Plan was merged with the New Plan. All employees that were participants under the Plan became participants in the New Plan. On October 1, 1998, the assets of the Plan were merged and transferred to: (1) Principal Life Insurance Company, as funding agent of the assets held under the terms of the Flexible Investment Annuity Contract with Coventry Health Care, Inc., (2) Delaware Charter Guarantee and Trust Company, as custodial trustee of the mutual funds and (3) Bankers Trust Company, as custodial trustee of the New Plan's participant loans and the Coventry Health Care, Inc. common stock. Participants should refer to the New Plan document for a complete description of their available investment options subsequent to October 1, 1998. The significant differences between the provisions of the Coventry Corporation Retirement Savings Plan and the New Plan are as follows: (1) the employer matching contributions under the New Plan are invested exclusively in Coventry Health Care, Inc. common stock under the direction of Coventry Health Care, Inc.; (2) the New Plan's vesting provisions allow participants to vest in the employer matching contributions upon completion of one year of service, and; (3) the administrative expenses of the Plan, including, but not limited to the trustee and investment management fees, will be paid by the Plan and allocated to the participant account balances. Participants should refer to the New Plan document for a complete description of the New Plan's provisions. Although the New Plan has not yet received a determination letter from the Internal Revenue Service, the New Plan Administrator believes that the New Plan is currently designed and is being operated in compliance with the applicable requirements of the IRC. 8. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500: The following is a reconciliation of net assets available for benefits per the accompanying financial statements to the Plan's Form 5500 tax filing:
DECEMBER 31, ----------------------------- 1997 1996 ----------- ----------- Net assets available for benefits per the accompanying financial statements $50,355,047 $43,706,130 Amounts allocated to withdrawing participants (14,952) - ----------- ----------- Net assets available for benefits per the Form 5500 $50,340,095 $43,706,130 =========== ===========
10 14 The following is a reconciliation of benefits paid to participants per the accompanying financial statements to the Plan's Form 5500 tax filing:
YEAR ENDED DECEMBER 31, 1997 ---------- Benefits paid to participants per the accompanying financial statements $8,320,703 Add- Amounts allocated to withdrawing participants at December 31, 1997 14,952 ---------- Benefits paid to participants per the Form 5500 $8,335,655 ==========
Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of that date. 11 15 COVENTRY CORPORATION RETIREMENT SAVINGS PLAN ITEM 27(A) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AS OF DECEMBER 31, 1997
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, RATE OF IDENTITY OF ISSUE, BORROWER, INTEREST, COLLATERAL, PAR, OR CURRENT LESSOR, OR SIMILAR PARTY MATURITY VALUE COST VALUE ------------------------ -------------- ----------- ----------- * Charles Schwab Cash $ 127,331 $ 127,331 * Schwab U.S. Treasury Money Fund Money market 3,154 3,154 * Coventry Corporation Common stock 3,082,692 2,752,025 Berger One Hundred Fund Equity mutual fund 9,207,082 7,084,603 Fidelity Balanced Fund Mixed mutual fund 431 - Fidelity Magellan Fund Equity mutual fund 11,121,103 13,573,356 INVESCO Stable Value Fund Fixed income fund 4,667,358 4,667,358 PIMCO Total Return Fund Fixed income fund 3,750,965 3,833,215 Brandywine Fund Equity mutual fund 1,610,364 1,426,543 Founders Balanced Fund Mixed mutual fund 711,033 714,773 Harbor Capital Appreciation Fund Equity mutual fund 1,102,901 1,093,314 Janus Worldwide Fund Equity mutual fund 2,156,670 2,205,999 Mutual Series Beacon Fund Mixed mutual fund 2,095,627 2,110,302 PBHG Growth Fund Equity mutual fund 2,066,044 2,083,797 Strong Government Securities Fund U.S. government bond fund 425,618 433,964 Vanguard Asset Allocation Fund Mixed mutual fund 6,310,213 7,174,083 * Participant Loans Maturing at various dates, interest rates ranging from 7.00% to 10.00% 1,088,159 1,088,159 ----------- ----------- $49,526,745 $50,371,976 =========== ===========
* Party-in-interest The accompanying notes are an integral part of this schedule. 12 16 SCHEDULE II COVENTRY CORPORATION RETIREMENT SAVINGS PLAN ITEM 27(D)--SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1997
PURCHASES SALES ----------------------- ----------------------------------------------- NUMBER OF PURCHASE NUMBER OF SELLING COST OF NET GAIN IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE TRANSACTIONS PRICE ASSETS (LOSS) -------------------------- -------------------- ------------ ---------- ------------ ---------- ---------- --------- * Charles Schwab Trust Company Berger One Hundred Fund 166 $3,010,934 653 $2,763,740 $2,534,950 $ 228,790 * Charles Schwab Trust Company Fidelity Balanced Fund 1 17,892 3 5,991,812 6,030,309 (38,497) * Charles Schwab Trust Company Fidelity Magellan Fund 212 1,968,131 800 4,111,262 3,832,477 278,785 * Charles Schwab Trust Company INVESCO Stable Value Fund 278 2,065,432 671 1,831,014 1,831,014 -- * Charles Schwab Trust Company Janus Worldwide Fund 268 2,041,665 353 608,897 626,798 (17,901) * Charles Schwab Trust Company Mutual Series Beacon Fund 260 1,981,110 474 499,594 544,956 (45,362) * Charles Schwab Trust Company PBHG Growth Fund 236 1,669,334 572 623,535 643,487 (19,952) * Charles Schwab Trust Company Vanguard Asset Allocation Fund 201 7,502,271 736 1,621,735 1,565,801 55,934
* Party-in-interest The accompanying notes are an integral part of this schedule. 13 EX-1 2 UNDERWRITING AGREEMENT 1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated October 14, 1998, included in this Form 11-K, into the Company's previously filed registration statements on Form S-8 (File No. 333-36735 and File No. 333-39581). /s/ Arthur Andersen LLP Washington, D.C. October 14, 1998 -----END PRIVACY-ENHANCED MESSAGE-----